On March 13, 2017, the United States District Court for the District of Delaware rejected LRR Energy L.P. (“LRR”) and Vanguard Natural Resources, LLC’s (“Vanguard”) motion to dismiss, allowing the putative shareholder class action suit against them and various current and former directors to proceed.  Robert Hurwitz v. LRR Energy, L.P., et al., Civ. No. 15-711-SLR (D. Del. March 13, 2017).  Plaintiff asserted claims under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) and Sections 14(a) and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”), alleging that Vanguard and LRR Energy failed to disclose material information related to Vanguard’s debt agreements in the proxy statement and registration statement issued by LRR and Vanguard, respectively, in connection with Vanguard’s acquisition of LRR in 2015.  In denying the motion to dismiss, the Court held that plaintiffs had sufficiently pled that the proxy and registration statement failed to disclose material information as to Vanguard’s ability to service its debt, and the consequences of such debt servicing issues.

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On March 16, 2017, District Judge Ann M. Donnelly of the United States District Court for the Eastern District of New York dismissed with prejudice a putative class action against Etsy, Inc., its CEO, CFO, certain of its directors, and the underwriters of its initial public offering (“IPO”).  Altayyar, et al., v. Etsy, Inc., et al., No. 1:15-cv-2785 (E.D.N.Y. March 16, 2017).  Plaintiffs alleged that the company and the individual defendants violated Section 10(b) of the Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, by artificially inflating Etsy’s stock price through misrepresentations leading up to Etsy’s IPO, causing plaintiffs to suffer losses when additional information was revealed and the company’s stock price dropped.  Plaintiffs also brought claims under Sections 11 and 12(a)(2) of the Securities Act of 1933 (the “Securities Act”) against all defendants, as well as claims under Section 15 of the Securities Act and Section 20(a) of the Exchange Act against the individual defendants.  In dismissing the complaint in its entirety, the Court found that plaintiffs had failed to establish that the company’s statements were objectively false, intentionally inaccurate, or materially misleading when made.

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On March 3, 2017, the First Department of the Appellate Division of New York Supreme Court reversed a lower court’s ruling and ordered summary judgment to be entered in favor of the defendant, TCW Asset Management Company (“TCW”), because plaintiffs failed to meet their burden of showing loss causation.  Basis Pac-Rim Opportunity Fund (Master) v. TCW Asset Management Co., No. 654033/12 (N.Y. App. Div. Mar. 3, 2017).  Plaintiffs asserted fraud claims against TCW alleging that it misled investors about the quality of the securities backing the collateralized debt obligation (“CDO”) at issue.  In reversing the trial court’s decision denying TCW’s motion for summary judgment, the First Department concluded that plaintiffs failed to produce any evidence demonstrating that “it was TCW’s misrepresentations, rather than market forces, which caused the investment losses.”

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On March 6, 2017, Judge Robert Sweet of the United States District Court for the Southern District of New York dismissed a putative class action against 6D Global Technologies, Inc. (“6D” or the “Company”) and certain of its officers and directors.  Puddu v. 6D Glob. Techs., Inc., No. 15-cv-8061 (RWS) (S.D.N.Y. Mar. 6, 2017).  Plaintiffs—purported shareholders of 6D—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 when they failed to disclose the Company’s association with an individual whom United States regulators have charged in connection with stock manipulation schemes.  The decision illustrates the challenges plaintiffs face when making claims based on alleged omissions because often there is no duty to disclose the omitted information.   

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On February 27, 2017, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York dismissed with prejudice a putative class action brought on behalf of purchasers of Wal-Mart de México SAB de CV (“Wal-Mex”) American Depositary Shares (“ADRs”) against Wal-Mex, Wal-Mart Stores, Inc. (“Wal-Mart”), and two Wal-Mex executives.  Fogel v. Wal-Mart de México Sab de CV, — F. Supp. 3d —, 2017 WL 751155 (S.D.N.Y. 2017).  The complaint alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder based on allegations that Wal-Mex’s annual reports for 2004 through 2011 failed to disclose an alleged bribery scheme.  In a detailed and thorough opinion that provides an overview of the state of Rule 10b-5 jurisprudence in the Second Circuit, the Court held that many of plaintiff’s claims were time barred, and that plaintiff failed to state a claim with respect to those claims that were timely.

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On February 24, 2017, Judge Edward Chen of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative securities class action against Leapfrog Enterprises, its current CEO, and its former CFO.  The complaint alleged that Leapfrog violated the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by falsely representing in its financial disclosures that it did not need to take write-offs related to the value of its goodwill and long-lived assets.  In re Leapfrog Enterprise, Inc. Sec. Litig., No. 15-cv-00347-EMC, 2017 WL 732909 (N.D. Cal. Feb. 24, 2017).  Considering the difference in the relevant disclosures, the Court dismissed plaintiffs’ claims related to the goodwill write-off, but not the claims related to the write-off of long-lived assets.

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On February 22, 2017, Judge J. Paul Oetken of the United States District Court for the Southern District of New York denied a motion to dismiss a putative class action lawsuit brought against Chinese mobile game developer iDreamSky Technology Ltd. (“iDreamSky”), its officers and directors and four underwriters.  In re: iDreamSky Technology Limited Securities Litigation, No. 15-CV-2514 (S.D.N.Y. Feb. 22, 2017).  The complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Rule 10b-5 and Section 20(a) of the Exchange Act, as well as Sections 11, 12(a)(1), 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”), based on allegations that the Company omitted to disclose the adverse financial impact of delays in the release of iDreamSky’s Cookie Run game in China, as well as the alleged lack of an adequate third-party billing platform.  

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On February 21, 2017, the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of a putative shareholder suit brought against officers, directors, principal shareholders and underwriters of EveryWare Global, Inc. (“EveryWare”), a now-bankrupt Ohio-based manufacturer of kitchenware.  IBEW Local No. 58 Annuity Fund v EveryWare Glob., Inc., No. 16-3445, 2017 WL 677487 (6th Cir. Feb. 21, 2017).  Plaintiffs alleged that EveryWare’s officers violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Securities Exchange Commission Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by knowingly providing false and misleading financial projections. Plaintiffs also alleged that various defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (“Securities Act”) because the registration statement and prospectus purportedly contained material misrepresentations.  The Court dismissed both the Exchange Act and Securities Act claims, finding that plaintiffs failed to adequately plead that EveryWare’s officers acted with the requisite intent to deceive shareholders or that the registration statement and prospectus contained material misrepresentations.

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On February 17, 2017, the United States Court of Appeals for the Ninth Circuit affirmed the dismissal of a putative securities class action brought against DreamWorks Animation SKG Inc. (“DreamWorks”), its CEO and CFO.  Roofers Local No. 149 Pension Fund v. DreamWorks Animation SKG, Inc., et al., No. 15-55945, 2017 WL 655789 (9th Cir Feb. 17, 2017).  Plaintiff had alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Securities and Exchange Commission Rule 10b-5 promulgated thereunder, along with Section 20(a) of the Exchange Act, by knowingly making false or misleading statements regarding the profitability of DreamWorks’ animated movie “Turbo” during announcements of second- and third-quarter results in 2013.  The Court affirmed the dismissal of the claims, holding that plaintiff failed to adequately allege a false or misleading statement or loss causation, underscoring that complaints filed in response to poorer-than-expected results and/or the mere announcement of a regulatory investigation are not likely to succeed.

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On February 9, 2017, Judge Charles Breyer of the United States District Court for the Northern District of California dismissed a putative class action lawsuit against Sunrun Inc. (“Sunrun” or the “Company”), its officers and directors, and the underwriters of its initial public offering (“IPO”).  Greenberg v. Sunrun Inc., No. 16 Civ. 2480 (N.D. Cal. Feb. 9, 2017).  Plaintiffs alleged that the offering documents for Sunrun’s IPO contained misleading representations and omissions in violation of sections 11, 12(a)(2), and 15 of the Securities Act of 1933.  In granting defendants’ motion to dismiss, Judge Breyer found that the offering materials were not misleading, stating that “at worst the Prospectus warned that the devil is in the details without describing precisely where in the details the devil might lurk.”

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On February 13, 2017, Judge Laura Taylor Swain of the United States District Court for the Southern District of New York dismissed with prejudice a putative class action against MaxPoint Interactive, Inc. (“MaxPoint” or the “Company”), several of its officers and directors, and the underwriters of its initial public offering.  Nguyen v. MaxPoint Interactive, Inc., No. 15-cv-6680-LTS, 2017 WL 570939 (S.D.N.Y. Feb. 13, 2017).  Plaintiff, who sought to bring this action on behalf of investors who purchased MaxPoint common stock that was issued in its initial public offering in March 2015 (the “IPO”), alleged that the registration statement for the IPO contained material misstatements and omissions in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933.  In granting MaxPoint’s motion to dismiss with prejudice, Judge Swain held that MaxPoint had no duty to disclose that at the time of its IPO it was signing smaller contracts with customers than it had in the past, and further held that the IPO registration statement gave investors sufficient information about the Company’s customer base. 

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On February 8, 2017, Judge Robin Rosenberg of the United States District Court for the Southern District of Florida dismissed with prejudice a putative shareholder class action against KLX Inc. and certain of its senior officers under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder.  In re KLX Inc. Sec. Litig., No. 9:16-CV-80023, slip op. (S.D. Fla. Feb. 8, 2017).  Plaintiffs alleged that KLX made misstatements and omissions (i) regarding the financial health of KLX’s energy services division and its employment figures and (ii) as a result of recognizing a good will and long-term asset impairment charge later than it should have.  In a complete and thorough opinion, the Court reiterated that neither puffery nor optimism provides grounds for a fraud claim, that forward looking statements are entitled to safe-harbor protection even when combined with representations that arguably refer to current facts, that GAAP violations alone are not sufficient for fraud, and that scienter should be judged with consideration of indications of non-fraudulent intent.   

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On February 1, 2017, United States District Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York dismissed a putative securities class action against Party City Holdco Inc., a global party goods retailer and supplier, two of its officers, the underwriters of its 2015 initial public offering, and two beneficial owners of Party City’s common stock who had purchased a majority of the company in a private transaction prior to the IPO.  Jones, et al. v. Party City Holdco, Inc. et al., No. 1:15-cv-9080 (S.D.N.Y. Feb. 1, 2017).  Plaintiffs alleged that the registration statement filed by Party City with the Securities Exchange Commission in advance of its IPO misled investors by failing to disclose that Party City’s success was heavily dependent on revenues from one particular license—in connection with sales of products related to Disney’s 2013 movie, Frozen—thereby causing Party City’s stock to drop more than 30% from the $17 per share IPO price to $11.80 per share when the materiality of that license allegedly was later disclosed.  Plaintiffs brought claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (the “Securities Act”).

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On January 19, 2017, the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s decision to dismiss a securities class action against Hewlett-Packard Co. (“HP”) and its former chief executive officer.  Retail Wholesale & Department Store Union Local 338 Retirement Fund v. Hewlett-Packard Co., No. 14-16433, 2017 WL 218026 (9th Cir. Jan. 19, 2017).  Plaintiffs alleged that HP and its former CEO violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) when the CEO breached HP’s code of ethics after he and the company had publicly promoted HP’s high ethical standards.  The court concluded that plaintiffs failed to allege an actionable fraud because, among other reasons, the alleged statements about HP’s code of ethics were not objectively false, but were instead “transparently aspirational.”

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On January 23, 2017, a panel of the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s decision to dismiss a proposed shareholder class action against Bank of America, N.A. and LaSalle Bank, N.A. (the “Bank”).   Richek v. Bank of America, N.A. and LaSalle Bank, N.A., 2017 WL 279498 (7th Cir. Jan. 23, 2017).  Plaintiffs alleged that the Bank was collecting a fee on their custodial accounts without informing customers, and, on this basis, brought a putative class action in state court alleging state law claims for breach of contract and breach of fiduciary duty.  The Bank removed the suit to federal court and successfully argued that the Securities Litigation Uniform Standards Act (“SLUSA”) preempted their state law claims.  The Seventh Circuit affirmed and held that SLUSA preempted the state law claims because they necessarily required consideration of whether there had been an omission in connection with the purchase or sale of a security based on plaintiffs’ claim that the Bank had not disclosed its collection of the fee.  A dissenting opinion criticized the majority’s approach, noting that the panel’s reasoning deepened a split among the Circuits over how courts should apply SLUSA to class actions alleging breach of contract or breach of fiduciary duty claims, and that this split requires resolution by the Supreme Court. 

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On January 17, 2017, Judge Beth Labson Freeman of the United States District Court for the Northern District of California dismissed with leave to amend a putative securities class action against TriNet Group, Inc. (“TriNet”), its officers and directors, a former controlling shareholder, and the underwriters of TriNet’s initial public offering (“IPO”) and a secondary offering (“SPO”).  Welgus v. TriNet, — F. Supp. 3d —, 2017 WL 167708 (N.D.Cal. 2017).  The Court held that plaintiff had not adequately alleged facts showing that the officer defendants knowingly made false statements in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) or facts sufficient to establish control person liability against TriNet’s controlling shareholder under Section 20 of the Exchange Act.  Nor had plaintiff stated a claim under Sections 11 and 12(a)(2) of the Securities Act of 1933 (the “Securities Act”) because, among other things, plaintiff had not sufficiently alleged that its shares were traceable to the IPO or SPO.

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On January 9, 2017, the United States Court of Appeals for the First Circuit affirmed the dismissal of a putative securities class action against InVivo Therapeutics Holdings Corporation and its former CEO, Frank Reynolds.  Battle Const. Co., Inc. v InVivo Therapeutics Holdings Corp., No. 15-1544, 2017 WL 74702 (1st Cir Jan. 9, 2017).  The Court held that InVivo’s press releases that allegedly failed to identify caveats and conditions imposed by the Food and Drug Administration (FDA) on clinical trials of a particular medical device did not constitute false or misleading statements under federal securities law.  Plaintiff alleged that defendants violated Sections 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5, and that Reynolds violated Section 20(a) of the Exchange Act pursuant to control person liability, by failing to disclose in the company’s press releases the FDA’s conditions that may impact the timing of the clinical trials.

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On December 29, 2016, Judge Haywood S. Gilliam of the United States District Court for the Northern District of California dismissed a putative securities class action against Solazyme, Inc. (“Solazyme”), certain of its officers and directors, and the underwriters of two of its securities offerings.  Norfolk Cty. Ret. Sys. v. Solazyme, Inc., et al., No. 15-cv-02938 (N.D. Ca. Dec. 29, 2016).  Plaintiffs, investors who allegedly purchased Solazyme securities traceable to public offerings of notes and common stock that were both made on March 27, 2014, claimed that defendants made false statements about Solazyme’s oil production facility in Moema, Brazil (the “Moema Facility”), in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”).  The Court granted defendants’ motion to dismiss, in part, because plaintiffs failed to plead with particularity that the challenged statements were false or misleading at the time they were made.  

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On December 27, 2016, Judge Arthur J. Tarnow of the United States District Court for the Eastern District of Michigan dismissed a putative class action against Esperion Therapeutics, Inc. (“Esperion” or the “Company”), a pharmaceutical company, and its chief executive officer.  Dougherty v. Esperion Therapeutics, Inc., No. 16 Civ. 10089 (E.D. Mich. Dec. 27, 2016).  Plaintiffs, purchasers of Esperion common stock, alleged that defendants made false statements regarding the U.S. Food and Drug Administration’s (“FDA”) approval process for a new drug in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.  The Court held, among other things, that plaintiffs failed to allege facts giving rise to a strong inference of scienter, and, in particular, that “[t]he inquiry is inherently comparative” in that it considers whether the inference of scienter is as strong or stronger than the opposing inference of non-culpability.  The Court also held that forward-looking statements about the approval process were protected under the PSLRA safe harbor.  The decision, one of many recent decisions involving statements about drug approvals, highlights the case-specific nature of the analysis and that specific disclosures about regulatory approval risks can provide a meaningful defense in securities cases.  

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On December 13, 2016, the United States Court of Appeals for the Tenth Circuit affirmed the dismissal of a securities fraud action against the manager-managed limited liability company and individual managers and officers of fast-food chain Quiznos.  Avenue Capital Management II, L.P., et al. v. Schaden et al., No. 15-1389, 2016 WL 7210052 (10th Cir. Dec. 13, 2016).  Plaintiffs, a pair of private equity firms, alleged Quiznos executives violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Securities and Exchange Commission Rule 10b-5 by fraudulently misrepresenting to plaintiffs the financial condition of Quiznos in a 2012 restructuring deal in which plaintiffs obtained an 80% equity interest in the company.  The Tenth Circuit affirmed that because plaintiffs collectively controlled the profitability of their investments, the underlying equity purchase did not constitute an “investment contract” and was thus not subject to the Exchange Act.

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On December 6, 2016, FireEye, Inc. (“FireEye”), a cybersecurity company, filed a petition for writ of certiorari with the United States Supreme Court concerning the scope of state court jurisdiction over “covered class actions” under the Securities Act of 1933, as amended by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  Petition for Writ of Certiorari, FireEye, Inc. v. Sup. Ct. of Cal. (U.S. Dec. 6, 2016).  

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On December 5, 2016, Judge Susan Illston of the United States District Court for the Northern District of California dismissed a securities class action against Hortonworks, Inc. (“Hortonworks”) and certain of its officers, with leave to amend.  Monachelli v. Hortonworks, 3:16‑cv‑00980-SI (N.D.Cal. Dec. 5, 2016).  Plaintiffs alleged that Hortonworks violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) through a series of misleading statements regarding the sufficiency of available capital that were made shortly before the company raised funds through a secondary equity offering.  The Court dismissed plaintiffs’ claims for several reasons, including because some of the alleged misstatements were forward-looking statements that qualified for protection under the safe harbor provisions of the Private Securities Litigation Reform Act (“PSLRA”).    

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On November 28, 2016, in In re ARIAD Pharm., Inc. Sec. Litig., —F.3d—, 2016 WL 6933788 (1st Cir. 2016), the United States Court of Appeals for the First Circuit affirmed the dismissal of securities class action claims brought against ARIAD Pharmaceuticals, Inc. (“ARIAD”) and certain individuals on the bases that (a) for all but one of the claims brought under the Securities Exchange Act of 1934, plaintiffs had failed to plead that the defendants had sufficient contemporaneous knowledge of facts underlying the alleged misrepresentations to establish a strong inference of scienter and (b) plaintiffs had failed to allege specific facts that plausibly suggested that their open-market share purchases could be “traced” to an allegedly misleading Registration Statement and, therefore, plaintiffs had not alleged a necessary element of their claims under the Securities Act of 1933.  The unanimous opinion was authored by Chief Judge Howard and joined by retired U.S. Supreme Court Justice Souter.  

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On November 10, 2016, Judge Lewis A. Kaplan of the United States District Court for the Southern District of New York granted in part and denied in part the motion to dismiss filed by defendants MetLife, Inc. (“MetLife”), certain of its officers and directors, and the underwriters of certain MetLife offerings.  City of Westland Police & Fire Ret. Sys. v. MetLife, Inc., No. 12-cv-0256 (LAK) (S.D.N.Y. Nov. 10, 2016).  Plaintiff alleged that MetLife misled investors regarding its financial performance because certain loss reserves underlying its financial statements failed to take into consideration policy holders who had died but had not filed claims yet.  The Court dismissed plaintiff’s claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) because plaintiff failed to plead that defendants acted with scienter, but the Court ruled that plaintiff had adequately alleged a material omission and permitted plaintiff’s claims under Sections 11, 12, and 15 of the Securities Act of 1933 (“Securities Act”) to proceed.  

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On November 7, 2016, Judge Lewis Kaplan of the United States District Court for the Southern District of New York dismissed a putative securities class action against a helicopter operating company, CHC Group Ltd. (“CHC”), and individual and underwriter defendants who participated in CHC’s initial public offering.  Rudman v. CHC Grp. Ltd., — F. Supp. 3d —, 2016 WL 6583788 (S.D.N.Y. 2016).  Plaintiffs had sued under Sections 11 and 12(a)(2) of the Securities Act of 1933 (the “Securities Act”), alleging that CHC’s IPO registration statement omitted material facts because it had not disclosed that one of CHC’s largest customers, Petroleo Brasileiro S.A. (“Petrobras”), had refused to pay fees over a period of time during which certain helicopters were grounded for industry-wide issues.  When that particular disclosure was eventually made, CHC’s stock price dropped $0.99 per share.  Nevertheless, concluding that the registration statement disclosed sufficient information to effectively put investors on notice of the Petrobras issues, and that any omitted information regarding the dispute was immaterial or puffery as a matter of law, the Court held that plaintiffs’ claims were untimely under any interpretation of the requirements of inquiry notice, and, separately, that the complaint failed to state a claim that there was any actionable omission under the Securities Act, including pursuant to any duties under Items 101, 303, and 503 of SEC Regulation S-K, Item 11A of SEC Form S-1, and SEC Regulation C.  The Court thus dismissed all claims with prejudice except as to CHC, the claims against which were subject to an automatic stay under Chapter 11 of the Bankruptcy Code.

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On November 3, 2016, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a “short-swing” trading suit brought against the lead underwriters in connection with Facebook, Inc.’s initial public offering (“IPO”).  In re: Facebook Inc., IPO Sec., No. 14-3800 (2nd Cir. Nov. 3, 2016).  The Second Circuit held that standard lock-up agreements in an IPO between lead underwriters and pre-IPO shareholders are not alone sufficient to render those parties a “group” under Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and therefore those parties were not subject to disgorgement pursuant to Section 16(b) of the Exchange Act.  Plaintiff had sought to hold the defendants liable under Section 16(b) for disgorgement of short-swing profits received in connection with their sales and purchases of shares in Facebook’s IPO. 

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On October 18, 2016, Judge Christina A. Snyder of the United States District Court for the Central District of California dismissed a putative securities class action brought against defendant SouFun Holdings Ltd.“ —a Chinese online real estate business—and certain of its officers Maresca v. SouFun Holdings Ltd., No. 15 Civ. 8508 (C.D. Cal. Oct. 18, 2016).  Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially misleading statements and omissions regarding the scale and success of SouFun’s new rental brokerage business.  The Court dismissed plaintiffs’ claims, concluding that plaintiffs failed to adequately plead materiality or scienter because (i) the brokerage activity at issue was not a significant portion of the company’s overall business and (ii) plaintiffs failed to plead facts from which to infer that senior officers in the company knew about the allegedly fraudulent transactions.   

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On October 26, 2016, the United States Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of a putative securities class action against Arena Pharmaceuticals (“Arena” or the “Company”) where the district court ruled that plaintiffs failed to adequately plead scienter.  Schueneman v. Arena Pharmaceuticals, Inc., No. 14-55633, -- F.3d ---- (9th Cir. Oct. 26, 2016).  This reversal sheds light on how courts sometimes evaluate scienter when an issuer comes under “an affirmative duty to disclose” adverse information because it has disclosed positive information, and the disclosure of the adverse information is found to be necessary to make the disclosures that have been made not misleading.  

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On October 13, 2016, Judge Susan Nelson of the United States District Court for the District of Minnesota dismissed a putative class action against RBC Capital Markets (a broker-dealer subsidiary of non-party Royal Bank of Canada (“RBC”)) which alleged that RBC Capital had violated the Minnesota Securities Act and state common law in connection with its sale of reverse convertible notes (“RCNs”) to plaintiffs.  Luis v. RBC Capital Mkts., LLC, No. 16-CV-00175-SRN-JSM, 2016 WL 6022909 (D. Minn. Oct. 13, 2016).  The Court held that the action was precluded under the Securities Litigation Uniform Standards Act (“SLUSA”), finding that the RCNs were “covered securities” under SLUSA even though they were not traded on an exchange.  The case is significant as apparently the first federal decision to consider whether a security is “covered” under SLUSA on the basis that it is “a security of the same issuer that is equal in seniority” to another security of the issuer that is listed on a national exchange.  15 U.S.C. § 77r(b)(1)(C). 

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On October 18, 2016, Judge Sam Sparks of the United States District Court for the Western District of Texas dismissed without prejudice a putative class action against EZCorp, Incorporated (“EZCorp”) for failure to adequately plead that defendants had acted with fraudulent intent.  Wu Winfred Huang v. EZCorp, Inc., 15-CA-00608-SS, 2016 WL 6092717 (W.D. Tex. Oct. 18, 2016).  Plaintiffs claimed that EZCorp and its CEO knew or recklessly disregarded the possibility that EZCorp’s reported financial results were materially false and misleading when made.  The Court’s rejection of plaintiffs’ confidential witness allegations is an example of the rigor with which such allegations often are analyzed.

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On October 11, 2016, Vivendi, S.A. moved for panel rehearing and rehearing en banc before the United States Court of Appeals for the Second Circuit following its September 27, 2016, decision affirming a jury verdict and judgment for shareholder plaintiffs in a securities class action suit.  Petition for Rehearing En Banc, In re Vivendi, S.A. Sec. Litig., No. 15-180 (2d Cir. filed Oct. 11, 2016); Second Circuit Affirms Judgment Following Rare Jury Trial In Securities Class Action, Shearman & Sterling LLP Need-To-Know Litigation Weekly (Oct. 3, 2016).

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On October 7, 2016, Judge Anthony J. Battaglia of the United States District Court for the Southern District of California dismissed a putative class action against Celladon Corporation and two of its executives.  Tadros v. Celladon Corporation et al., No. 15-cv-01458 (S.D. Cal. Oct. 7, 2016).  The Court held that plaintiff failed to meet the heightened pleading requirements under the Private Securities Litigation Reform Act of 1995 (“PSLRA”) in alleging a material misrepresentation or omission and scienter in support of its securities fraud claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Securities and Exchange Commission Rule 10b-5.  Plaintiff alleged that Celladon and its executives intentionally misled investors through false or misleading statements regarding the success of early clinical trials of Mydicar, the company’s prospective cardiovascular drug.  According to plaintiff, Celladon’s stock price declined by 80% after announcements by the company in April 2015 that Mydicar failed to meet its goals in the second phase of the trial.  Plaintiff brought this action in July 2015.

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On September 30, 2016, Judge Richard J. Sullivan of the United States District Court for the Southern District of New York dismissed with prejudice a putative securities class action brought against MDC Partners, Inc. (“MDC”)—an advertising agency holding company—and several of its current and former officers and directors.  N. Collier Fire & Rescue Dist. Firefighter Pension Plan v. MDC Partners, Inc., No. 15 Civ. 6034 (S.D.N.Y. Sept. 30, 2016).  Plaintiffs claimed that defendants violated Section 10(b) of the Securities Exchange Actmisstating the amount of compensation paid to MDC’s founder and former CEO. The Court held that the alleged misrepresentations regarding the CEO’s compensation were not qualitatively material and dismissed the claims.   

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​On October 3, 2016, the Supreme Court invited the Acting Solicitor General to file a brief expressing the views of the United States in Cyan, Inc. v. Beaver County Employees Retirement Fund (“Cyan”), a case in which the Supreme Court is considering whether, under Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), a state court lacks subject matter jurisdiction over covered class actions that allege claims only under the Securities Act of 1933 (“Securities Act”).  There is no obligation on the part of the Solicitor General to respond or a formal deadline for it to do so, but the invitation by the Supreme Court could be read to suggest an increased likelihood that the Supreme Court will hear the case.

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On September 27, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the judgment of the Southern District of New York, after a bench trial, finding that Vivendi Universal, S.A. (“Vivendi”) rebutted the fraud-on-the-market presumption of reliance, thereby defeating a non-class, individual group of plaintiffs’ claims under Section 10(b) of the Securities Exchange Act of 1934.  GAMCO Inv’rs, Inc. v. Vivendi Universal, S.A., —F.3d—, 2016 WL 5389281 (2d Cir. Sept. 27, 2016).  The Court affirmed the district court’s determination that plaintiffs—a number of “value funds” controlled by GAMCO Investors, Inc. (“GAMCO”)—did not rely on Vivendi’s market price, and would have purchased the securities even had they known of Vivendi’s alleged misstatements respecting its liquidity risk.  While acknowledging that it would seem unlikely that an investor, “aware of fraud,” would purchase a security, the Court repeatedly emphasized that sufficient evidence in the trial record supported the district court’s findings.

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On September 27, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the judgment for shareholder plaintiffs in a securities class action suit against Vivendi Universal, S.A. (“Vivendi”), following a lengthy jury trial, which found Vivendi liable for securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934.  In re Vivendi, S.A. Securities Litigation, No. 15-180-cv(L), 15-208-cv (XAP), 2016 WL 5389288 (2d Cir. Sept. 27, 2016).  Plaintiffs were a class of investors who purchased Vivendi common stock between 2000 and 2002.  In affirming, the Court found sufficient evidence in the record to support the jury’s conclusion that Vivendi materially misstated its liquidity risk in a manner that either inflated or maintained Vivendi’s stock price, and that the revelation of the truth about Vivendi’s liquidity risk caused a drop in Vivendi’s share price.  The case is significant for a number of reasons, including the affirmance of a verdict arising out of a rare securities class action trial, and its analysis of loss causation and the controversial “price maintenance” theory of loss causation.

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On September 20, 2016, Judge Susan O. Hickey of the United States District Court for the Western District of Arkansas certified a class of investors in an action brought against Wal-Mart Stores Inc. for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.  City of Pontiac General Employees’ Retirement System v. Wal-Mart Stores, Inc. et al., No. 5:12-cv-05162 (W.D. Ark. Sept. 20, 2016).  The Court held that the proposed class met the numerosity, commonality, typicality, and adequacy of representation requirements under Rule 23 of the Federal Rules of Civil Procedures (“Rule 23”), and named the City of Pontiac General Employees’ Retirement System as class representative.  

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On September 2, 2016, Chief Judge Leonard P. Stark of the U.S. District Court for the District of Delaware denied a motion to remand a putative class action brought under the Securities Act of 1933 (the “Securities Act”) to state court.  Iron Workers District Counsel of New England Pension Fund v. MoneyGram Int’l Inc.

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On September 2, 2016, Judge William Orrick of the Northern District of California dismissed with prejudice a putative class action against Cellular Biomedicine Group, Inc. (“CBMG”) alleging securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934.  Bonanno v. Cellular Biomedicine Group, Inc., No. 15-CV-01795-WHO, 2016 WL 4585753 (N.D. Cal. Sept. 2, 2016).  The Court held that plaintiffs failed to plead with particularity that a blog post compiling publicly available information about CBMG’s efforts to promote its stock was a corrective disclosure causing CBMG’s share price to drop, even in light of the allegation that the information was far-flung or effectively “hidden” or impossible for a lay person to compile. 

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On September 7, 2016, the Court of Appeals for the 11^th Circuit affirmed the Southern District of Florida’s dismissal of shareholder securities fraud claims against The ADT Corporation (“ADT”).  IBEW Local 595 Pension and Money Purchase Pension Plans, et al v. The ADT Corporation et al, No. 15-13595, 2016 WL 4660814 (11th Cir. Sept. 7, 2016).  Plaintiffs claimed that ADT misrepresented and failed to disclose that its board’s motivation for approving a leveraged repurchase of company stock was to protect itself from threats of replacement by an activist hedge fund (the “Fund”) and that ADT and the Fund engaged in deceptive conduct in executing the repurchase plan, in violation of Section 10(b) of the Securities Exchange Act of 1934.  The Court held that ADT was not required to disclose its motives for the repurchase and the defendants had not engaged in manipulative conduct.

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On August 24, 2016, a three-judge panel of the United States Court of Appeals for the Second Circuit affirmed the dismissal of claims brought by putative class members under Section 10(b) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5 against defendants BlackBerry Ltd. and certain of its officers.  Pearlstein, et al. v. BlackBerry, et al., No. 15-3991 (2d Cir. August 24, 2016).  The Court, however, vacated U.S. District Court Judge Thomas P. Griesa’s denial of plaintiffs’ motion for leave to amend, noting that the record was “insufficient” to determine whether leave was proper.  The Court remanded the case for reconsideration of the motion for leave to amend “[b]ecause the district court did not explain its basis for denying leave to amend.”

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On August 22, 2016, the United States Court of Appeals for the Third Circuit affirmed the lower court’s dismissal of a putative securities class action filed against Cooper Tire & Rubber Company (“Cooper”) and two of its officers.  OFI Asset Mgmt. v. Cooper Tire & Rubber Co., No. 15-2664 (3d Cir. Aug. 22, 2016).  The Third Circuit held that plaintiffs’ lengthy allegations amounted to nothing more than claims of fraud-by-hindsight and thus did not meet the requirement that claims of securities fraud be pled with particularity.  

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On August 18, 2016, Judge Kimba Wood of the United States District Court for the Southern District of New York dismissed a putative class action against FXCM Inc., a currency brokerage firm, and its two co-founders, with leave to replead.  Ret. Bd. of the Policemen’s Annuity and Benefit Fund of Chi. v. FXCM Inc., 15-cv-3599 (S.D.N.Y. Aug. 18, 2016).  In dismissing plaintiff’s claims under Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”), the Court found that plaintiff failed to plead allegations sufficient to give rise to a strong inference of scienter, holding that the complaint failed to allege either “motive or opportunity” or “strong circumstantial evidence of conscious misbehavior or recklessness.”  Judge Wood’s decision joins the well-established Second Circuit precedent that plaintiff cannot meet the heightened pleading requirement merely by alleging that the defendant was motivated by a common desire to keep the corporation’s profits or by alleging “fraud by hindsight,” and confirmed that the standard for pleading scienter on the basis of recklessness is high.

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On August 10, 2016, the Eleventh Circuit affirmed the dismissal of a putative class action alleging that various JPMorgan entities and two JPMorgan employees were liable under federal securities laws and civil RICO for frauds perpetrated by Bernie Madoff’s advisory business, Bernie L. Madoff Investment Securities LLC (“BLMIS”).  Dusek v. JPMorgan Chase & Co., —F.3d—, 2016 WL 4205857 (11th Cir. Aug. 10, 2016).  Plaintiffs claimed that the defendants were liable under section 20 of the Securities Exchange Act of 1934 (“Exchange Act”) and the federal civil RICO statute based on their banking relationship with Madoff and their access to BLMIS’s bank accounts.  The Court held that the securities law claim was barred by the Exchange Act’s five-year statute of repose and that the RICO claim was barred by the Private Securities Litigation Reform Act (“PSLRA”).  

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On August 11, 2016, the New York Appellate Division, First Department, affirmed the New York Supreme Court’s denial of a motion to dismiss fraud claims asserted against sponsors and underwriters of twenty-three residential mortgage backed securities (“RMBS”).  IKB International, S.A. v. Morgan Stanley, 2016 WL 4217814 (1^st Dep’t Aug. 11, 2016).  Defendants argued that the plaintiff had not adequately alleged its justifiable reliance on any alleged misrepresentation and that, when acting solely as underwriters of certain of the challenged transactions, they made no actionable misrepresentations.  The Court held that the plaintiff had adequately pleaded justifiable reliance on the purported misstatements and that the underwriters’ participation in the RMBS at issue, as pleaded, was sufficient to withstand a motion to dismiss.

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On August 11, 2016, the Second Circuit overruled its own precedent and vacated an order of the United States District Court for the Southern District of New York that had dismissed a petition to vacate an arbitration award because the petition did not, on its face, present a federal question.  Doscher v. Sea Port Grp. Sec., LLC, —F.3d—, 2016 WL 4245427 (2d Cir. Aug. 11, 2016).  The Court held that when considering a petition challenging an arbitration award under section 10 of the Federal Arbitration Act (“FAA”), federal courts may “look through” the petition to the underlying dispute between the parties to determine whether the petition is predicated on an action arising under federal law.

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On August 5, 2016, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of common law fraud and negligent misrepresentation claims against Citigroup, Inc.  AHW Investment Partnership v. Citigroup, Inc., No. 13-4488 (2d Cir. Aug. 5, 2016).  In a summary order, the Court held that plaintiffs may only recover for actual pecuniary losses sustained as the direct result of fraud, and not for hypothetical value plaintiffs may have realized by selling a stock before its price plummeted.  Plaintiffs had alleged that Citigroup and its officers made numerous fraudulent and negligent misrepresentations about the quality of plaintiffs’ investment in Citigroup between May 2007 and March 2009, causing plaintiffs to hold their Citigroup shares and incur losses of $800 million when the company’s stock price subsequently declined.

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On July 27, 2016, Judge Sarah Illston of the United States District Court for the Northern District of California remanded two putative securities class actions against Fitbit, Inc.—one to the Superior Court of California, San Mateo County and the other to the Superior Court of California, San Francisco County.  See Rivera v. Fitbit, Inc., Case No. 16-cv-2890 (N.D. Cal. July 27, 2016); De Luz v. Fitbit, Inc., Case No. 16-cv-3381 (N.D. Cal. July 27, 2016).  Both matters had been commenced in California Superior Court in April and May of 2016, alleging only claims under the Securities Act of 1933 (the “Securities Act”).  Fitbit removed both actions to federal court, and plaintiffs moved to remand, arguing that the Securities Act prohibits removal of class actions when those actions assert only Securities Act claims.  

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On July 25, 2016, Judge David Carter of the United States District Court for the Central District of California dismissed, without prejudice, a putative class action brought by shareholders of El Pollo Loco Holdings, Inc. (“El Pollo”).  See Turocy v. El Pollo Loco Holdings, Inc. No. SA CV 15-1343-DOC (KESx) (C.D. Cal. July 25, 2016).  Plaintiffs alleged that El Pollo and certain of its executives made false statements concerning expected sales by failing to disclose the negative sales impact of recent changes in menu prices and offerings, in violation of Section 10(b) of the Securities Exchange Act of 1934.  The Court held, however, that plaintiffs had not alleged any actionable false statements, nor pleaded particularized facts creating a sufficiently compelling inference that El Pollo executives made the challenged statements with scienter.

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On July 22, 2016, the Court of Appeals for the Eighth Circuit dismissed a shareholder derivative action alleging that directors and executives at Wal-Mart Stores, Inc. (“Wal-Mart”) permitted and then covered up pervasive bribery at its Mexican subsidiary, Wal-Mart de Mexico (“Wal-Mex”).  Cottrell v. Duke, No. 15-1869 (8th Cir. July 22, 2016).  Plaintiffs were seeking to enforce rights belonging to Wal-Mart, but alleged that they were not required to demand that Wal-Mart itself pursue the claims, because the current board of directors was not impartial, meaning that such a demand would have been futile.  Applying Delaware law (the state of Wal-Mart’s incorporation), the Court found plaintiffs’ allegations insufficient to excuse demand as futile, and upheld the dismissal of the action.

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